24 July 2017

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  • US crop condition ratings have been released as follows:

  • Soybeans were down overnight on weather related selling on the rain across parts of the Midwest. Yet, the afternoon close was more than 10 cents over the overnight lows. After the close, NASS reported national good/excellent crop ratings were at 57% versus 61% the previous week. Excluding the 2012 drought, good/excellent ratings for this week are now the lowest since 2006!.The big surprise was an 8% drop in IL good/excellent rating to 59%. OH slipped 3%, IN was down 2%, and IA was off 1% from last week. In the Plains, ND good/excellent was up 1%, while NE and SD each lost another 4% on the widening drought. National good/excellent crop ratings were well under expectations, and will support a higher soybean trade overnight. November soybeans have held a broad range of $9.85-10.45 in the last three weeks, and we look for this range to hold into the August crop report. US soybean yield potential is quickly rolling backwards.
  • Corn futures ended lower, but well off session lows, as the Central US forecast lacks any meaningful rainfall beyond the next 72 hours, and nearby totals will be confined to parts of SD, E IA, MN and WI. Crop conditions continue to erode, and as we have mentioned previously we struggle to peg national US corn yield above 165 bushels/acre. Weather premium will be added on Tuesday. good/excellent ratings as of Sunday totalled 62%, down 2% from the previous week and compared to 76% on this week in 2016, or a 20% decline in ratings from last year. Note that conditions deteriorated in IA, NE, ND and SD despite recent rainfall there. Another slight decline is anticipated next week. Brazilian farmers are reported to no longer be profitable, and it will be interesting to see how first-crop corn acres change there, with planting to begin in September. A 159-162 bushels/acre US yield cannot be ruled out until a wetter pattern change is confirmed, which looks increasingly unlikely.
  • Wheat futures followed corn to moderate losses, and as yields reported from Russia and Ukraine have improved relative to last week. Russian wheat production may be a record 74-75 million mt, but the sum of major exporter production is trending lower amid ongoing dryness in Canada and Australia, which in the case of Canada will most likely get much worse into the first part of August. Spring wheat crop ratings continue to decline, albeit slightly, with current good/excellent (33%) a record low for this particular week. World cash prices are weaker following lower futures in the US and Europe, and as the €uro and Ruble weakened slightly. Weather, however, is little changed and very heavy rain will be ongoing in Germany and Poland in the next 2-3 days. Cumulative totals are put at 3-4” there. Canada will be warm and very dry, as a broad Ridge/Trough pattern continues across N America. Recently added long positions are being liquidated, but work suggest fair value lies between $5.00-5.50, basis spot Chicago.

21 July 2017

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  • The US Vegetation Health Index (VHI) reflects the heady crop conditions that exist across the southern half of the US, and the growing concern for crop/yields across the Plains and NW Midwest. The VHI reflects that the dire N Plains drought is moving south and east. Traders will closely be following whether that progression continues during August. The need for rain is immediate across IA, NE, SW MN and the Dakotas. Yield damage in the Dakotas is irreparable at this juncture. It is IA, MO and KS that cannot further slip on soil moisture in the next few weeks.


  • Friday was a quieter trading day that left soybean prices 4-5 cents lower, but still up more than 20 cents for the week. Meal finished slightly weaker, while December soybean yoil marked the 2nd consecutive close over the contract’s 200 day moving average. Based on where rains fell and the week’s heat, we would expect that crop ratings on Monday will be 1-2% lower. Field visits reflect extremely small sized soybean plants in IN, IL, MO and IA. It all comes down to Mother Nature for the direction of the market. Soybeans are in their reproductive phase and the impact of weather on yield enlarges.
  • We have discussed how the W Corn Belt is now “ground zero” for US corn yield changes, and overnight precipitation was a bit more widespread across C IA than expected. Additional precipitation will linger across; N IA, MN, WI and N IL in the next 24 hours, but a major N American weather pattern shift is not indicated. Model updates today in fact features additional bouts of heat across the Western Corn Belt, along with weekend temperature in the 90s/low 100s across the Plains, into the first week of August, as a high pressure ridge hangs on barring a Gulf tropical storm. It is understandable that the market adds and subtracts premium based on very near term weather, but our point is that national US corn yield potential is now lower relative to 165-167 bu/acre estimates. Expect volatility through the remainder of the growing season, but so far we are disappointed in yield estimates from even the E Corn Belt. Short term downside risk appears limited to $3.85 December with the upside pegged at $4.20-4.40 into mid August.
  • Overnight rain across pockets of the W Corn Belt triggered profit taking/new selling in US grain futures, and wheat was not immune. Harvest in Europe and the Black Sea is ongoing, and we would mention that yields reported in Ukraine have improved. Otherwise, world cash markets ending the week are little changed, mostly due to even newer highs in the €uro. Wheat will most likely follow Chicago corn into early autumn, though world cash markets tend to find their seasonal lows in the first half August. The trend thereafter is for a slow but steady rally into November/December. Interior Russian wheat markets are steady/higher on the week. Cash prices in the Volga region are sharply higher, likely due to slowed harvest progress. Too much rain (3-4.00”) will fall across Germany and Poland over the next 7 days, and Central Russia will stay in a rather wet pattern through the next several weeks.

20 July 2017

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  • It’s hot! As predicted by model forecasts last week, high temperature in the 90s have become more widespread, and readings in the low 100s have been too common this week across OK, KS and parts of the N Plains. There is still little moisture relief forecast in the Dakotas into early August, but rain will be badly needed in IA, MO and much of S IL by next week to prevent further erosion in yield potential. There are some hints of ongoing rainfall in the E Corn Belt, but price determination in the very near term will hinge upon any sign of moisture across the W Midwest.

 

  • Soybean futures traded up overnight, and continued on that course throughout the day. Only light producer has been noted and yield and crop size concerns have been cited as the reason for this as the market searches for supply. The close saw 13-14 cent gains, and we are now some 40 cents over last week’s lows. Weather forecasts continue to maintain high temperatures across the Midwest into the weekend with building head scheduled to return next week. The W Midwest and Plains have limited rain forecast and it seems the market is destined to add further weather premium until such time as the weather pattern changes.
  • The corn market’s central focus now is projected ten day rainfall in IA and S IL, and today’s updates feature ongoing dryness there into the final days of the month. Only a small pocket of IA benefited from Wednesday’s system. The very latest weather model runs keep meaningful precipitation into next week isolated to far NE IA and N IL, and so the driest areas look to get drier in the near term. This is not a demand led market, until there is more certainty about crop size we view selling breaks as a game for the brave! Yield could fall into the 162 – 168 bushels/acre range, which is very wide and the extreme could prove significant as far as price impact is concerned.
  • US wheat futures traded higher on currency news as the US$ hit ten month lows and the €uro made multi year highs, and fund profit taking appears to be towards an end. Australian prices are beginning to recognise lower yield potential and the fact that little rain is forecast into the start of August. Current world prices appear (to us at least) to represent fair value right now, and history shows that seasonal market lows are generally in place by mid-August. Now would therefore not appear the place to become bearish.

19 July 2017

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  • Wednesday saw soybean markets in Chicago extend overnight gains on weather concerns and an expectation that the next crop rating release would show a further decline. Funds were reported to be buyers in beans, meal and oil throughout the session. Brazilian soybean meal exports this season have been well under last year but this week has seen a sharp and counter seasonal jump in meal export demand. The lineups show a 1.5 million mt volume scheduled to sail in the month of July, although it would be fair to assume some of this volume would roll into August purely from a logistical perspective. Brazilian meal offers currently stand at around $35-40 below US and some $15-20 below Argentine levels. Current suggestions are that US Plains soybean crop losses stand at 1 bushels/acre off the national yield and dry/drought conditions are continuing to edge east. The crop needs ideal conditions from now if the remainder of the season is to make up losses.
  •  US corn markets are adding weather premium and shrug off the wetter GFS weather model forecast. The current GFS model has been updated and is in better agreement with the EU model, however, the GFS forecast contains a much wetter profile in IA in the next ten days yet the trade show seems to be biased towards the EU forecast based upon previous better accuracy and performance. Quite how much rain falls across the W Corn Belt in the next 72 hours will be critical and we expect Thursday’s Drought Monitor release to an expansion of above normal drought.
  • Wheat markets in Chicago ended steady with other classes lower as funds exit recently established long positions, which were record large in Kansas and Minneapolis. Fresh demand news was absent in wheat markets; we would suggest that downside in wheat is limited as problems in Canada and Australia show no sign of abating, indeed they appear to be worsening, and now we hear of frost issues in Brazil, which will potentially limit yields there too. Soil moisture levels in the Canadian Prairies continue to deteriorate. Global cash prices continue to show that sourcing higher protein wheat remains an issue.
  • Cash wheat prices in Europe are about unchanged, but Russian levels are higher as concern levels rise as far as higher protein wheat (12.5% and above) is concerned. Russian August ’17 12.5% wheat is offered at $198/mt vs. $160/mt exactly a year ago, and todays offer is cheap in relation to other origins – please draw your own conclusion! Currencies in Russia, Canada and Australia are up on the week, and we would not expect to see exporters as aggressive this summer/autumn as was the case last year.

18 July 2017

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  • Apart from weather issues, which have dominated markets (and our updates) in recent times, one of the other major issues has been currency moves and relationships. The US$ has undergone a major correction recently and other currencies are getting somewhat stronger; including €uro, which has acted to firm up cash wheat prices. Ahead of S America’s planting season beginning mid to late September it would be wise to keep an eye on currency and its ongoing impact.
  • Soybeans were a shade higher overnight following the decline in crop ratings having been as much as 19 cents higher although closing only 4 or so cents up on the day. Canadian canola (rapeseed) made gains, more so than in soybeans, and it is canola that could well have the more bullish balance sheet. Drought stresses look to be intensifying in conditions not seen since the 2002 drought there. Weather forecasts continue to vary, but there seems little immediate prospect of improving crop condition, which works against yield and ultimately output.
  • Corn, like soybeans, ended the day a shade higher in the wake of the crop condition report, and traders are somewhat skeptical of the latest weather forecasts. The question remains, what has been, and will be, the impact of heat and dryness in July on US national corn yield. The US corn balance sheet is likely to need a revision – downwards unless we see a material improvement in precipitation.
  • Global cash wheat markets were mixed apart from spring crops, which rallied a further 14 cents/bu, and global futures prices were generally a much lower on the day. There is little in the way of market moving fresh news to stimulate direction. A fresh 12 month high in the €pro sent EU cash markets to some gains and Australian markets also jumped on further output concerns as drought conditions in W and S Australia intensify. Some are forecasting Aussie output this season just under 20 million mt vs. 35 million a year ago. Egypt secured 300,000 mt of wheat from Russia, Romania and France at prices fractionally above their last purchase earlier in the month (basis average fob). This price is the highest paid in some years, and it should not be overlooked that Egyptian purchase prices set, or are extremely influential upon, global levels. Indeed, recent prices paid correlate well with the trend in global cash levels this year.

17 July 2017

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  • Traders have the big question of what is the Central US weather going to do into the end of summer, and what impact is it going to have upon crops, yields and ultimately output. Will conditions be sufficiently threatening to trigger fund managers into a substantial net long position in corn and soybeans. Funds have returned to their largest net long position in age (corn, wheat, soybeans, lean hogs live and feeder cattle) since late spring 2016. Fund do have a tendency to trade gas from the long side, and as a consequence upside risk does lie in corn and soybean markets.
  • Monday saw soybeans finish slightly lower in mixed trade, deemed indecisive! Early strength faded as June crush data was below expectations. The lower close was well above last week’s low, a significant point. Crop condition declined, despite rains last week, with 61% of the crop rated good/excellent vs. 62% last week and 71% last year.
  • Corn ended mixed and little changed as crop condition fell as expected together with weather forecasts continuing to trend hot and dry into month end, which will likely lead to further condition deterioration. 64% of the crop was rated good/excellent vs. 76% a year ago, and is the lowest condition rating since 2012 (drought year!).
  • Wheat markets were mixed with winter crops shedding value whilst spring wheat added premium in declining condition and yield potential. US spring wheat condition fell to 34% good/excellent vs. 35% last week, and it seems NASS has not yet finished lowering HRS output estimates. Global cash wheat markets are a shade weaker amid €uro strength and profit taking in London and Paris futures markets. Russian output estimates are growing, with some forecasters on the upside of 73 million mt. Weather in Russia has been favourable although logistical issues and VAT rebate debates we would question whether this will allow their exports to grow significantly over 27 or 28 million mt, unchanged from last year. It feels very much as if global wheat trade patterns are about to change this coming year.

13 July 2017

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  • US export data has been released as follows:
  • Today’s price action in Chicago has been described as “down and dirty” with futures contracts in corn, soybeans and wheat all sharply lower today. The recent rally has inspired a “shoot now, ask later” type of mentality, which we are witnessing right now. There is a bearish overtone from the USDA’s July crop report and there have been some “tweaks” to weather models that are showing cooler and wetter conditions across the eastern Midwest in the next ten days.
  • China appears to have returned to the market as a buyer, having been absent in the recent rally, and this is an important factor because any sizeable price decline will doubtless prompt further buying, and in turn price support.
  • Weather markets are roller coasters, with scary turns and sharp price direction changes, 2017 is proving no exception and is not disappointing.
  • Today’s spec selling after a 10-12 day rally, is clearly warranted from a corrective perspective. Central US weather has turned somewhat less price supportive although the lack of rain through the Plains remains worrisome. We caution against a bearish stance, certainly until we are more certain of weather prospects going into the key second half of July and August.

12 July 2017

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  • Today’s July WASDE report was expectedly bearish on grains and supportive to soybeans. Soybeans should, therefore, gain on the grains as the market adds additional weather premium into the soybean complex as end stock forecasts decline. US spring wheat production will likely continue to declines abandonment rates grow (rapidly) into the August and September reports. Today’s HRS and durum wheat estimates are purely the start point in the production decline process; there is likely to be a further 65-85 million bu drop in output before the final counts are done.
  • Reports aside, we are now going to turn back to weather focus in the central US regions with the coming two to three weeks being key to corn and soybean yield. Volatility will doubtless ebb and flow with each and every weather forecast.
  • NASS estimated 2017 US wheat production at 1,760 million bu (down 64 million or 3.5% from the June forecast) based on a dramatic cut in US spring wheat production. NASS estimated US HRS wheat production at 385 million bu. US HRS wheat end stocks were forecast at just 122 million bu, down 113 million or 48% from last year. US HRW wheat end stocks fell 145 million bu to 448 million bu while US SRW wheat end stocks rose to 236 million bu from this year’s 215 million. WASDE cut 2017/18 US wheat exports by 25 million bu to 975 million bu and also cut feed/residual use by 20 million bu to 150 million. The cuts in export/feed use of 45 million helped balance the decline in new crop supply of 64 million bu. When the additional old crop carryover of 23 million bu is included, it raised 2017/18 US wheat end stocks to 938 million bu, which makes it difficult to sustain a rally much above $5.70-5.90 basis September Chicago wheat futures. The wheat data was bearish. We would note that 2017/18 world wheat end stocks grew to a record large 261.2 million mt up slightly from June. Russian 2017 wheat production was raised to a near record 72 million mt, whilst Australian production was trimmed by 1.5 million mt to 23.5 million. The EU wheat crop was only moderately cut by 750,000 mt to 150.0 million mt. The world still has plenty of wheat, but world major exporter supplies are in decline with a reduction expected in Canada in the August WASDE report.
  • US 2017/18 US corn end stocks rose to 2,325 million bu, up 215 million from the June forecast. The increase is based on the enlarged old crop supplies and the larger new crop seeding that was indicated in the June report. WASDE used a trend corn yield of 170.7 bushels/acre. If the yield was cut 5 bushels/acre, it would leave US 2017/18 corn end stocks of 1,900 million bu. Such stocks are adequate and it would take a yield of less than 160 bushels/acre to become bullish corn. We still see 2017/18 of US corn exports being 150 million bu lower at 1,725 million bu. US 2017/18 world corn stocks rose to 200.81 million mt, up 6.5 million from June, but still down 27 million from the current crop year. The 2017 Ukraine corn crop was left at 28.5 million mt, which many see as 3-4 million too large.
  • US 2016/17 soybean end stocks were lowered by 40 million bu based on a 50 million bu increase in exports (record large 2,100 million bu), and a 10 million bu reduction in the residual to 14 million bu. The smaller old crop stocks reduced 2017/18 US soybean end stocks to 460 million bu. It should be noted that WASDE raised China’s 2016/17 US soybean imports to 91 million mt and raised 2017/18 to 94 million mt. The rise in Chinese imports was long overdue.